kim20170630_10q.htm Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                

 

Commission File Number:   1-10899

 

Kimco Realty Corporation

(Exact name of registrant as specified in its charter)

 

Maryland

  

13-2744380

(State or other jurisdiction of incorporation or organization)

  

(I.R.S. Employer Identification No.)

 

3333 New Hyde Park Road, New Hyde Park, NY 11042

(Address of principal executive offices) (Zip Code)

 

(516) 869-9000

(Registrant’s telephone number, including area code)

 

        N/A        

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

(Do not check if a smaller

reporting company)

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act). Yes ☐ No ☒

 

As of July 17, 2017, the registrant had 425,636,328 shares of common stock outstanding.

 



 
 

Table of Contents
 

 

PART I FINANCIAL INFORMATION

 

Item 1.

Financial Statements of Kimco Realty Corporation and Subsidiaries (Unaudited)

  

  

  

  

Condensed Consolidated Financial Statements -

  

  

  

  

  

Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016

3

  

  

 

  

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2017 and 2016

4

  

   

  

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016

5

  

   

  

Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2017 and 2016

6

  

   

  

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016

7

  

   

Notes to Condensed Consolidated Financial Statements

8

  

   

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

  

  

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

  

  

 

Item 4.

Controls and Procedures

31

  

   

PART II

OTHER INFORMATION

   

Item 1.

Legal Proceedings

32

  

 

Item 1A.

Risk Factors

32

   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
     

Item 6.

Exhibits

33

  

 

Signatures

34

 

 
2

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share information)

  

   

June 30,

   

December 31,

 
   

2017

   

2016

 

Assets:

               

Operating real estate, net of accumulated depreciation of $2,398,558 and $2,278,292 respectively

  $ 9,543,381     $ 9,394,755  

Investments in and advances to real estate joint ventures

    506,449       504,209  

Real estate under development

    418,612       335,028  

Other real estate investments

    210,246       209,146  

Mortgages and other financing receivables

    22,495       23,197  

Cash and cash equivalents

    143,099       142,486  

Marketable securities

    14,487       8,101  

Accounts and notes receivable, net

    176,907       181,823  

Other assets

    522,644       431,855  

Total assets (1)

  $ 11,558,320     $ 11,230,600  
                 

Liabilities:

               

Notes payable, net

  $ 4,520,055     $ 3,927,251  

Mortgages payable, net

    870,125       1,139,117  

Dividends payable

    124,679       124,517  

Other liabilities

    521,797       549,888  

Total liabilities (2)

    6,036,656       5,740,773  

Redeemable noncontrolling interests

    96,062       86,953  
                 

Commitments and Contingencies

               
                 

Stockholders' equity:

               

Preferred stock, $1.00 par value, authorized 6,029,100 shares 32,000 shares issued and outstanding (in series) Aggregate liquidation preference $800,000

    32       32  

Common stock, $.01 par value, authorized 750,000,000 shares issued and outstanding 425,637,458 and 425,034,113 shares, respectively

    4,256       4,250  

Paid-in capital

    5,930,633       5,922,958  

Cumulative distributions in excess of net income

    (709,671 )     (676,867 )

Accumulated other comprehensive income

    6,073       5,766  

Total stockholders' equity

    5,231,323       5,256,139  

Noncontrolling interests

    194,279       146,735  

Total equity

    5,425,602       5,402,874  

Total liabilities and equity

  $ 11,558,320     $ 11,230,600  

 

(1)

Includes restricted assets of consolidated variable interest entities (“VIEs”) at June 30, 2017 and December 31, 2016 of $654,588 and $333,705, respectively. See Footnote 6 of the Notes to Condensed Consolidated Financial Statements.

(2)

Includes non-recourse liabilities of consolidated VIEs at June 30, 2017 and December 31, 2016 of $406,909 and $176,216, respectively. See Footnote 6 of the Notes to Condensed Consolidated Financial Statements.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
3

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share data)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Revenues

                               

Revenues from rental properties

  $ 292,843     $ 287,115     $ 582,234     $ 580,206  

Management and other fee income

    4,333       4,373       8,530       8,484  
                                 

Total revenues

    297,176       291,488       590,764       588,690  
                                 

Operating expenses

                               

Rent

    2,765       2,728       5,548       5,546  

Real estate taxes

    38,747       35,791       77,016       70,263  

Operating and maintenance

    35,435       33,223       69,665       67,776  

General and administrative

    27,233       29,928       57,807       61,857  

Provision for doubtful accounts

    2,096       1,185       3,500       4,660  

Impairment charges

    29,719       52,213       31,336       58,053  

Depreciation and amortization

    95,270       82,753       187,344       167,609  

Total operating expenses

    231,265       237,821       432,216       435,764  
                                 

Operating income

    65,911       53,667       158,548       152,926  
                                 

Other income/(expense)

                               

Other income/(expense), net

    1,439       (1,012 )     2,712       (1,182 )

Interest expense

    (46,090 )     (50,479 )     (92,572 )     (102,930 )

Income from continuing operations before income taxes, net, equity in income of joint ventures, net, gain on change in control of interests and equity in income from other real estate investments, net

    21,260       2,176       68,688       48,814  
                                 

Benefit/(provision) for income taxes, net

    1,034       246       1,527       (11,866 )

Equity in income of joint ventures, net

    13,169       108,685       27,902       178,618  

Gain on change in control of interests

    60,972       46,512       71,160       46,512  

Equity in income of other real estate investments, net

    38,356       7,959       42,043       18,758  
                                 

Income from continuing operations

    134,791       165,578       211,320       280,836  
                                 

Gain on sale of operating properties, net of tax

    19,883       39,268       21,569       66,164  
                                 

Net income

    154,674       204,846       232,889       347,000  
                                 

Net income attributable to noncontrolling interests

    (11,258 )     (1,437 )     (12,740 )     (2,878 )
                                 

Net income attributable to the Company

    143,416       203,409       220,149       344,122  
                                 

Preferred stock dividends

    (11,555 )     (11,555 )     (23,110 )     (23,110 )
                                 

Net income available to the Company's common shareholders

  $ 131,861     $ 191,854     $ 197,039     $ 321,012  
                                 

Per common share:

                               

Net income available to the Company:

                               

-Basic

  $ 0.31     $ 0.46     $ 0.46     $ 0.77  

-Diluted

  $ 0.31     $ 0.46     $ 0.46     $ 0.77  
                                 

Weighted average shares:

                               

-Basic

    423,650       417,748       423,516       415,189  

-Diluted

    424,944       419,302       424,084       416,732  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
4

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2017

   

2016

   

2017

   

2016

 
                                 

Net income

  $ 154,674     $ 204,846     $ 232,889     $ 347,000  

Other comprehensive income:

                               

Change in unrealized loss/gain on marketable securities

    (1,647 )     (35 )     (1,619 )     (33 )

Change in unrealized loss on interest rate swaps

    17       (155 )     205       (759 )

Change in foreign currency translation adjustment

    1,218       (156 )     1,721       2,354  

Other comprehensive income:

    (412 )     (346 )     307       1,562  
                                 

Comprehensive income

    154,262       204,500       233,196       348,562  
                                 

Comprehensive income attributable to noncontrolling interests

    (11,258 )     (1,437 )     (12,740 )     (2,878 )
                                 

Comprehensive income attributable to the Company

  $ 143,004     $ 203,063     $ 220,456     $ 345,684  

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
5

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Six Months Ended June 30, 2017 and 2016

(Unaudited)

(in thousands)

 

   

Cumulative Distributions in Excess of Net

   

Accumulated Other Comprehensive

   

Preferred Stock

   

Common Stock

   

Paid-in

   

Total Stockholders'

   

Noncontrolling

   

Total

 
   

Income

   

 Income

   

Issued

   

Amount

   

Issued

   

Amount

   

Capital

   

Equity

   

Interests

   

Equity

 
                                                                                 

Balance, January 1, 2016

  $ (572,335 )   $ 5,588       32     $ 32       413,431     $ 4,134     $ 5,608,881     $ 5,046,300     $ 135,651     $ 5,181,951  
                                                                                 

Contributions/deemed contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       475       475  
                                                                                 

Comprehensive income:

                                                                               

Net income

    344,122       -       -       -       -       -       -       344,122       2,878       347,000  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized gain on marketable securities

    -       (33 )     -       -       -       -       -       (33 )     -       (33 )

Change in unrealized loss on interest rate swaps

    -       (759 )     -       -       -       -       -       (759 )     -       (759 )

Change in foreign currency translation adjustment

    -       2,354       -       -       -       -       -       2,354       -       2,354  
                                                              -               -  

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (2,147 )     (2,147 )

Dividends ($0.51 per common share; $0.7500 per Class I Depositary Share, and $0.6875 per Class J Depositary Share. and $0.7032 per Class K Depositary Share, respectively)

    (237,135 )     -       -       -       -       -       -       (237,135 )     -       (237,135 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (6,299 )     (6,299 )

Issuance of common stock

    -       -       -       -       5,839       59       139,068       139,127       -       139,127  

Surrender of restricted stock

    -       -       -       -       (251 )     (3 )     (6,439 )     (6,442 )     -       (6,442 )

Exercise of common stock options

    -       -       -       -       979       10       17,462       17,472       -       17,472  

Amortization of equity awards

    -       -       -       -       -       -       9,121       9,121       -       9,121  

Balance, June 30, 2016

  $ (465,348 )   $ 7,150       32     $ 32       419,998     $ 4,200     $ 5,768,093     $ 5,314,127     $ 130,558     $ 5,444,685  
                                                                                 

Balance, January 1, 2017

  $ (676,867 )   $ 5,766       32     $ 32       425,034     $ 4,250     $ 5,922,958     $ 5,256,139     $ 146,735     $ 5,402,874  

Contributions/deemed contributions from noncontrolling interests

    -       -       -       -       -       -       -       -       48,604       48,604  

Comprehensive income:

                                                                               

Net income

    220,149       -       -       -       -       -       -       220,149       12,740       232,889  

Other comprehensive income, net of tax:

                                                                               

Change in unrealized loss on marketable securities

    -       (1,619 )     -       -       -       -       -       (1,619 )     -       (1,619 )

Change in unrealized loss on interest rate swaps

    -       205       -       -       -       -       -       205       -       205  

Change in foreign currency translation adjustment

    -       1,721       -       -       -       -       -       1,721       -       1,721  
                                                                                 

Redeemable noncontrolling interests income

    -       -       -       -       -       -       -       -       (1,109 )     (1,109 )

Dividends ($0.54 per common share; $0.7500 per Class I Depositary Share, and $0.6875 per Class J Depositary Share. and $0.7032 per Class K Depositary Share, respectively)

    (252,953 )     -       -       -       -       -       -       (252,953 )     -       (252,953 )

Distributions to noncontrolling interests

    -       -       -       -       -       -       -       -       (12,691 )     (12,691 )

Issuance of common stock

    -       -       -       -       776       8       (8 )     -       -       -  

Surrender of restricted stock

    -       -       -       -       (224 )     (2 )     (5,322 )     (5,324 )     -       (5,324 )

Exercise of common stock options

    -       -       -       -       51       -       973       973       -       973  

Amortization of equity awards

    -       -       -       -       -       -       12,032       12,032       -       12,032  

Balance, June 30, 2017

  $ (709,671 )   $ 6,073       32     $ 32       425,637     $ 4,256     $ 5,930,633     $ 5,231,323     $ 194,279     $ 5,425,602  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
6

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   

Six Months Ended June 30,

 
   

2017

   

2016

 

Cash flow from operating activities:

               

Net income

  $ 232,889     $ 347,000  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    187,344       167,609  

Impairment charges

    31,336       58,053  

Equity award expense

    13,775       11,552  

Gain on sale of operating properties

    (21,569 )     (72,101 )

Gain on change in control of interests

    (71,160 )     (46,512 )

Equity in income of joint ventures, net

    (27,902 )     (178,618 )

Equity in income from other real estate investments, net

    (42,043 )     (18,758 )

Distributions from joint ventures and other real estate investments

    27,678       54,029  

Change in accounts and notes receivable

    4,916       2,551  

Change in accounts payable and accrued expenses

    (10,506 )     (4,697 )

Change in Canadian withholding tax receivable

    (507 )     (66,911 )

Change in other operating assets and liabilities

    (24,217 )     (37,350 )

Net cash flow provided by operating activities

    300,034       215,847  
                 

Cash flow from investing activities:

               

Acquisition of operating real estate and other related net assets

    (56,036 )     (95,801 )

Improvements to operating real estate

    (81,280 )     (70,333 )

Acquisition of real estate under development

    (10,010 )     (50,778 )

Improvements to real estate under development

    (91,729 )     (18,448 )

Investment in marketable securities

    (9,822 )     (1,325 )

Proceeds from sale of marketable securities

    1,846       1,850  

Investments in and advances to real estate joint ventures

    (22,704 )     (26,160 )

Reimbursements of investments in and advances to real estate joint ventures

    15,793       56,431  

Distributions from liquidation of real estate joint ventures

    -       136,005  

Return of investment from liquidation of real estate joint ventures

    -       149,296  

Investment in other real estate investments

    (569 )     (233 )

Reimbursements of investments and advances to other real estate investments

    39,751       10,475  

Collection of mortgage loans receivable

    514       461  

Reimbursements of other investments

    -       500  

Proceeds from sale of operating properties

    66,803       214,858  

Proceeds from sale of development properties

    -       4,551  

Net cash flow (used for)/provided by investing activities

    (147,443 )     311,349  
                 

Cash flow from financing activities:

               

Principal payments on debt, excluding normal amortization of rental property debt

    (463,572 )     (233,303 )

Principal payments on rental property debt

    (8,129 )     (10,380 )

Proceeds from unsecured revolving credit facility, net

    449,958       100,019  

Proceeds from issuance of unsecured notes

    400,000       150,000  

Repayments under unsecured term loan/notes

    (250,000 )     (300,000 )

Financing origination costs

    (14,936 )     (4,697 )

Payment of early extinguishment of debt charges

    (708 )     -  

Change in tenants' security deposits

    640       963  

Contributions from noncontrolling interests

    1,284       -  

Conversion/distribution of noncontrolling interests

    (14,695 )     (2,572 )

Dividends paid

    (252,793 )     (235,458 )

Proceeds from issuance of stock, net

    973       156,513  

Net cash flow used for financing activities

    (151,978 )     (378,915 )
                 

Change in cash and cash equivalents

    613       148,281  
                 

Cash and cash equivalents, beginning of period

    142,486       189,534  

Cash and cash equivalents, end of period

  $ 143,099     $ 337,815  
                 

Interest paid during the period (net of capitalized interest of $6,442 and $3,762, respectively)

  $ 96,306     $ 111,761  
                 

Income taxes paid during the period (net of refunds received of $2,082 and $18,723, respectively)

  $ 1,325     $ 94,639  

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
7

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KIMCO REALTY CORPORATION AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Interim Financial Statements

 

Business -

 

Kimco Realty Corporation and subsidiaries (the "Company"), affiliates and related real estate joint ventures are engaged principally in the ownership, management, development and operation of open-air shopping centers, which are anchored generally by discount department stores, grocery stores or drugstores. Additionally, the Company provides complementary services that capitalize on the Company’s established retail real estate expertise.

 

The Company elected status as a Real Estate Investment Trust (a “REIT”) for federal income tax purposes beginning in its taxable year ended December 31, 1991 and operates in a manner that enables the Company to maintain its status as a REIT.  As a REIT, with respect to each taxable year, the Company must distribute at least 90 percent of its taxable income (excluding capital gain) and does not pay federal income taxes on the amount distributed to its shareholders.  The Company is not generally subject to federal income taxes if it distributes 100 percent of its taxable income.  Most states, where the Company holds investments in real estate, conform to the federal rules recognizing REITs.  Certain subsidiaries have made a joint election with the Company to be treated as taxable REIT subsidiaries (“TRSs”), which permit the Company to engage in certain business activities which the REIT may not conduct directly.  A TRS is subject to federal and state income taxes on its income, and the Company includes, when applicable, a provision for taxes in its condensed consolidated financial statements.  The Company is subject to and also includes in its tax provision non-U.S. income taxes on certain investments located in jurisdictions outside the U.S. These investments are held by the Company at the REIT level and not in the Company’s taxable REIT subsidiaries. Accordingly, the Company does not expect a U.S. income tax impact associated with the repatriation of undistributed earnings from the Company’s foreign subsidiaries.

 

Principles of Consolidation -

 

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company. The Company’s subsidiaries include subsidiaries which are wholly-owned and all entities in which the Company has a controlling financial interest, including where the Company has been determined to be a primary beneficiary of a variable interest entity (“VIE”) in accordance with the Consolidation guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). All inter-company balances and transactions have been eliminated in consolidation.  The information presented in the accompanying Condensed Consolidated Financial Statements is unaudited and reflects all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods presented, and all such adjustments are of a normal recurring nature.  These Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited Annual Report on Form 10-K for the year ended December 31, 2016 (the “10-K”), as certain disclosures in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, that would duplicate those included in the 10-K are not included in these Condensed Consolidated Financial Statements.

 

Subsequent Events -

 

The Company has evaluated subsequent events and transactions for potential recognition or disclosure in the condensed consolidated financial statements (see Footnote 10).

 

 
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Earnings Per Share -

 

The following table sets forth the reconciliation of earnings and the weighted average number of shares used in the calculation of basic and diluted earnings per share (amounts presented in thousands except per share data):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2017

   

2016

   

2017

   

2016

 

Computation of Basic and Diluted Earnings Per Share:

                               

Net income available to the Company's common shareholders

  $ 131,861     $ 191,854     $ 197,039     $ 321,012  

Earnings attributable to participating securities

    (647 )     (1,067 )     (1,070 )     (1,701 )

Net income available to the Company’s common shareholders for basic earnings per share

    131,214       190,787       195,969       319,311  

Distributions on convertible units

    259       28       29       47  

Net income available to the Company’s common shareholders for diluted earnings per share

  $ 131,473     $ 190,815     $ 195,998     $ 319,358  
                                 

Weighted average common shares outstanding – basic

    423,650       417,748       423,516       415,189  

Effect of dilutive securities (a):

                               

Equity awards

    432       1,457       505       1,450  

Assumed conversion of convertible units

    862       97       63       93  

Weighted average common shares outstanding – diluted

    424,944       419,302       424,084       416,732  
                                 

Net income available to the Company's common shareholders:

                               

Basic earnings per share

  $ 0.31     $ 0.46     $ 0.46     $ 0.77  

Diluted earnings per share

  $ 0.31     $ 0.46     $ 0.46     $ 0.77  

 

(a)

The effect of the assumed conversion of certain convertible units had an anti-dilutive effect upon the calculation of Income from continuing operations per share. Accordingly, the impact of such conversions has not been included in the determination of diluted earnings per share calculations. Additionally, there were 4,010,883 and 5,108,530 stock options that were not dilutive as of June 30, 2017 and 2016, respectively.

 

The Company's unvested restricted share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings.

 

 
9

 

 

New Accounting Pronouncements

 

The following table represents Accounting Standard Updates (“ASU”) to the FASB’s Accounting Standards Codification (“ASC”) that are not yet effective for the Company and for which the Company has not elected early adoption, where permitted:

 

 

ASU

   

Description

   

Effective Date

   

Effect on the financial

statements or other

significant matters

 
 

ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting

 

   

The amendment provides guidance about which changes to the

terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance will be applied prospectively to awards modified on or after the adoption date.

 

   

January 1, 2018; Early adoption permitted

 

   

The adoption is not expected to have a material effect on the Company’s financial position and/or results of operations.

 

 
 

ASU 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (“Subtopic 610-20”): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

 

   

The amendment clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset and defines the term in substance nonfinancial asset. ASU 2017-05 also clarifies that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty.  Subtopic 610-20, which was issued in May 2014 as part of ASU 2014-09, discussed below, provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. An entity is required to apply the amendments in ASU 2017-05 at the same time it applies the amendments in ASU 2014-09 discussed below. An entity may elect to apply the amendments in ASU 2017-05 either retrospectively to each period presented in the financial statements in accordance with the guidance on accounting changes in ASC Topic 250, Accounting Changes and Error Corrections, paragraphs 10-45-5 through 10-45-10 (i.e. the retrospective approach) or retrospectively with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption (i.e. the modified retrospective approach). An entity may elect to apply all of the amendments in ASU 2017-05 and ASU 2014-09 using the same transition method, or alternatively may elect to use different transition methods.

 

   

January 1, 2018; Early adoption is permitted if adopted with ASU 2014-09

 

   

Upon adoption, the Company will appropriately apply the guidance to prospective disposals of nonfinancial assets within the scope of Subtopic 610-20.

 

 
 

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

 

   

The new guidance introduces a new model for estimating credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses.

 

   

January 1, 2020; Early adoption permitted

 

   

The adoption is not expected to have a material effect on the Company’s financial position and/or results of operations.

 

 

 

 
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Table of Contents
 

 

 

 

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

 

ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date

 

ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations

 

ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying performance obligations and licensing

 

ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-scope improvements and practical expedients

 

   

ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 was anticipated to be effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption was not permitted.

 

In August 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09 by one year making it effective for the first interim period within annual reporting periods beginning after December 15, 2017.

 

Subsequently, in March 2016, the FASB issued ASU 2016-08, which further clarifies the implementation guidance on principal versus agent considerations, and in April 2016, the FASB issued ASU 2016-10, an update on identifying performance obligations and accounting for licenses of intellectual property.

 

Additionally, in May 2016, the FASB issued ASU 2016-12, which includes amendments for enhanced clarification of the guidance. Early adoption is permitted as of the original effective date.

 

   

January 1, 2018; Early adoption permitted as of original effective date, which was January 1, 2017

   

The Company’s revenue-producing contracts are primarily leases that are not within the scope of this standard until the effective date of ASU 2016-02 discussed below. As a result, the Company does not expect the adoption to have a material impact on the Company’s rental income. The Company continues to evaluate the effect the adoption will have on the Company’s other sources of revenue which include management and other fee income. However, the Company currently does not believe the adoption will significantly affect the timing of the recognition of the Company’s management and other fee income. The Company plans to adopt this standard using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of adoption.

 
 

ASU 2016-02, Leases (Topic 842)

   

This ASU sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (Topic 840).

 

   

January 1, 2019; Early adoption permitted

   

The Company continues to evaluate the effect the adoption will have on the Company’s financial position and/or results of operations. However, the Company currently believes that the adoption will not have a material impact for operating leases where it is a lessor and will continue to record revenues from rental properties for its operating leases on a straight-line basis. However, for leases where the Company is a lessee, primarily for the Company’s ground leases and administrative office leases, the Company will be required to record a lease liability and a right of use asset on its Consolidated Balance Sheets at fair value upon adoption. In addition, direct internal leasing costs will continue to be capitalized, however, indirect internal leasing costs previously capitalized will be expensed. Within the terms of the Company’s leases where the Company is the lessor, the Company is entitled to receive reimbursement amounts from tenants for operating expenses such as real estate taxes, insurance and other common area maintenance (“CAM”). CAM reimbursement revenue will be accounted for in accordance with Topic 606 upon adoption of this ASU 2016-02. The Company continues to evaluate the effect the adoption will have on this source of revenue. However, the Company currently does not believe the adoption will significantly affect the timing of the recognition of the Company’s CAM reimbursement revenue.

 

 

 
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The following ASU’s to the FASB’s ASC have been adopted by the Company:

 

 

ASU

   

Description

   

Adoption

Date

   

Effect on the financial

statements or other significant

matters

 
 

ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business

   

The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.

   

January 1, 2017; Elected early adoption

   

The Company’s operating property acquisitions during the six months ended June 30, 2017, qualified for asset acquisition treatment under ASC 360, Property, Plant, and Equipment, rather than business combination treatment under ASC 805 Business Combinations, and resulted in the capitalization of asset acquisition costs rather than directly expensing these costs.

 

 
 

ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

 

   

The update simplifies several aspects of accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.

 

   

January 1, 2017

   

The adoption did not have a material effect on the Company’s financial position and/or results of operations.

 

 

 

2. Operating Property Activities

 

Acquisitions of Operating Real Estate -

 

During the six months ended June 30, 2017, the Company acquired the following operating properties, in separate transactions, through direct asset purchases or consolidation due to change in control resulting from the purchase of additional interests or obtaining control through the modification of a joint venture investment:

 

       

Purchase Price (in thousands)

 

Property Name

Location

Month

Acquired/

Consolidated

 

Cash

   

Debt

   

Other Consideration*

   

Total

   

GLA**

 

Plantation Commons

Plantation, FL (1)(3)

Jan-17

  $ -     $ -     $ 12,300     $ 12,300       60  

Gordon Plaza

Woodbridge, VA (1)(3)

Jan-17

    -       -       3,100       3,100       184  

Plaza del Prado

Glenview, IL

Jan-17

    39,063       -       -       39,063       142  

Columbia Crossing Parcel

Columbia Crossing, MD

Jan-17

    5,100       -       -       5,100       25  

The District at Tustin Legacy

Tustin, CA (2)(3)

Apr-17

    -       206,000       98,698       304,698       688  
        $ 44,163     $ 206,000     $ 114,098     $ 364,261       1,099  

* Includes the Company’s previously held equity interest investment

** Gross leasable area ("GLA")

 

(1)

The Company acquired from its partners, their ownership interest in properties that were held in joint ventures in which the Company had noncontrolling interests. The Company now has a controlling interest in these properties and has deemed these entities to be VIEs for which the Company is the primary beneficiary and now consolidates these assets.

(2)

Effective April 1, 2017, the Company and its partner amended its joint venture agreement relating to the Company’s investment in this property. As a result of this amendment, the Company now controls the entity and consolidates the property. This entity is deemed to be a VIE for which the Company is the primary beneficiary.

(3)

The Company evaluated these transactions pursuant to the FASB’s Consolidation guidance and as a result, recognized gains on change in control of interests resulting from the fair value adjustments associated with the Company’s previously held equity interests, which are included in the purchase price above in Other Consideration. The Company’s current ownership interests and gains on change in control of interests recognized as a result of these transactions are as follows (in thousands):

  
 
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Table of Contents
 

 

Property Name

 

Current

Ownership

Interest

   

Gain on change

in control of

interests

 

Plantation Commons

    76.25%     $ 9,793  

Gordon Plaza

    40.62%       395  

The District at Tustin Legacy

    (a)        60,972  
            $ 71,160  

 

 

(a)

The Company’s share of this investment is subject to change and dependent upon property cash flows (54.27% as of date of consolidation).

 

Included in the Company’s Condensed Consolidated Statements of Income are $7.3 million and $4.8 million in revenues from rental properties from the date of acquisition through June 30, 2017 and 2016, respectively, for operating properties acquired during each of the respective years.

 

The Company adopted ASU 2017-01 effective January 1, 2017 and applied the guidance to its operating property acquisitions during the six months ended June 30, 2017. The purchase price for these acquisitions is allocated to real estate and related intangible assets acquired and liabilities assumed, as applicable, in accordance with our accounting policies for asset acquisitions.

 

The purchase price allocations for properties acquired/consolidated during the six months ended June 30, 2017, are as follows (in thousands): 

 

Land

  $ 120,645  

Buildings

    192,428  

Above-market leases

    11,697  

Below-market leases

    (7,129 )

In-place leases

    27,170  

Building improvements

    16,218  

Tenant improvements

    7,665  

Mortgage fair value adjustment

    (6,222 )

Other assets

    5,090  

Other liabilities

    (3,301 )

Net assets acquired

  $ 364,261  

 

As of June 30, 2017, the allocation adjustments and revised allocations for properties accounted for as business combinations during the year ended December 31, 2016, are as follows (in thousands): 

 

   

Allocation as of

December 31, 2016

   

Allocation

Adjustments

   

Revised Allocation

as of June 30, 2017

 

Land

  $ 179,150     $ (5,150 )   $ 174,000  

Buildings

    309,493       (30,696 )     278,797  

Above-market leases

    11,982       885       12,867  

Below-market leases

    (31,903 )     (4,716 )     (36,619 )

In-place leases

    44,094       (1,063 )     43,031  

Building improvements

    124,105       41,895       166,000  

Tenant improvements

    12,788       (1,155 )     11,633  

Mortgage fair value adjustment

    (4,292 )     -       (4,292 )

Other assets

    234       -       234  

Other liabilities

    (27 )     -       (27 )

Net assets acquired

  $ 645,624     $ -     $ 645,624  

 

Dispositions–

 

During the six months ended June 30, 2017, the Company disposed of 11 consolidated operating properties and five out-parcels, in separate transactions, for an aggregate sales price of $157.3 million. These transactions resulted in (i) an aggregate gain of $21.6 million and (ii) aggregate impairment charges of $2.4 million.

 

Impairments

 

During the six months ended June 30, 2017, the Company recognized aggregate impairment charges of $31.3 million. These impairment charges consist of (i) $2.4 million related to the sale of certain operating properties, as discussed above, (ii) $12.7 million related to adjustments to property carrying values for properties which the Company has marketed for sale as part of its active capital recycling program and as such has adjusted the anticipated hold periods for such properties and (iii) $16.2 million related to a property for which the Company has re-evaluated its long-term plan for the property due to unfavorable local market conditions. The Company’s estimated fair values of these properties were primarily based upon estimated sales prices from (i) signed contracts or letters of intent from third party offers or (ii) a discounted cash flow model. See Footnote 11 for fair value disclosure.

 

 
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3. Real Estate Under Development

 

The Company is engaged in various real estate development projects for long-term investment. As of June 30, 2017, the Company had in progress a total of five active real estate development projects and two additional projects held for future development located in the U.S.

 

The costs incurred to date for these real estate development projects are as follows (in thousands):

 

Property Name

Location

 

June 30, 2017

   

December 31, 2016

 

Grand Parkway Marketplace (1)

Spring, TX

  $ 129,414     $ 94,841  

Dania Pointe (2)

Dania Beach, FL

    126,790       107,113  

Promenade at Christiana

New Castle, DE

    28,734       25,521  

Owings Mills

Owings Mills, MD

    28,226       25,119  

Lincoln Square (3)

Philadelphia, PA

    47,481       -  

Avenues Walk (4)

Jacksonville, FL

    48,573       73,048  

Staten Island Plaza (5)

Staten Island, NY

    9,394       9,386  
      $ 418,612     $ 335,028  

 

 

(1)

During the six months ended June 30, 2017, the Company sold a land parcel at this development project for a sales price of $2.9 million.

 

(2)

Includes $45.9 million of land held for future development.

 

(3)

During the six months ended June 30, 2017, KIM Lincoln, LLC (“KIM Lincoln”), a wholly owned subsidiary of the Company, and Lincoln Square Property, LP (“Lincoln Member”) entered into a joint venture agreement wherein KIM Lincoln has a 90% controlling interest and Lincoln Member has a 10% noncontrolling interest. The joint venture acquired land parcels in Philadelphia, PA to be held for development for a gross purchase price of $10.0 million. Based upon the Company’s intent to develop the property, the Company allocated the gross purchase price to Real estate under development on the Company’s Condensed Consolidated Balance Sheets. This joint venture is accounted for as a consolidated VIE (see Footnote 6).

 

(4)

Effective April 1, 2017, certain aspects of this development project, aggregating $24.5 million, were placed in service and reclassified into Operating real estate, net on the Company’s Condensed Consolidated Balance Sheets. The remaining portion of the project consists of a mixed-use project to be developed in the future.

 

(5)

Land held for future development.

 

During the six months ended June 30, 2017, the Company capitalized interest of $5.2 million, real estate taxes and insurance of $1.2 million and payroll of $2.2 million, in connection with these real estate development projects.

 

4. Investments in and Advances to Real Estate Joint Ventures

 

The Company and its subsidiaries have investments in and advances to various real estate joint ventures. These joint ventures are engaged primarily in the operation of shopping centers which are either owned or held under long-term operating leases. The Company and the joint venture partners have joint approval rights for major decisions, including those regarding property operations. As such, the Company holds noncontrolling interests in these joint ventures and accounts for them under the equity method of accounting.

 

The table below presents joint venture investments for which the Company held an ownership interest at June 30, 2017 and December 31, 2016 (in millions, except number of properties):

 

   

As of June 30, 2017

   

As of December 31, 2016

 

Venture

 

Ownership

Interest

   

Number of

Properties

   

The

Company's

Investment

   

Ownership

Interest

   

Number of

Properties

   

The

Company's

Investment

 

Prudential Investment Program (“KimPru” and “KimPru II”) (1) (2)

    15.0%       46       179.2       15.0%       48     $ 182.5  

Kimco Income Opportunity Portfolio (“KIR”) (2)

    48.6%       44       146.8       48.6%       45       145.2  

Canada Pension Plan Investment Board (“CPP”) (2)

    55.0%       5       119.5       55.0%       5       111.8  

Other Joint Venture Programs

    Various       31       60.9       Various       37       64.7  

Total*

            126     $ 506.4               135     $ 504.2  

 

* Representing 24.6 million and 26.2 million square feet of GLA, respectively.

 

(1)

Represents four separate joint ventures, with four separate accounts managed by Prudential Global Investment Management (“PGIM”), three of these ventures are collectively referred to as KimPru and the remaining venture is referred to as KimPru II.

(2)

The Company manages these joint venture investments and, where applicable, earns acquisition fees, leasing commissions, property management fees, asset management fees and construction management fees.

 

 
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The table below presents the Company’s share of net income for the above investments which is included in Equity in income of joint ventures, net on the Company’s Condensed Consolidated Statements of Income for the three and six months ended June 30, 2017 and 2016 (in millions):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2017

   

2016

   

2017

   

2016

 

KimPru and KimPru II

  $ 3.2     $ 3.1     $ 6.5     $ 5.3  

KIR

    7.2       12.1       16.6       19.5  

CPP

    1.3       0.9       2.9       4.8  

Other Joint Venture Programs

    1.5       92.6       1.9       149.0  

Total

  $ 13.2     $ 108.7     27.9     $ 178.6  

 

During the six months ended June 30, 2017, certain of the Company’s real estate joint ventures disposed of six operating properties and a portion of one property, in separate transactions, for an aggregate sales price of $49.3 million. These transactions resulted in an aggregate net gain to the Company of $0.1 million, before income taxes, for the six months ended June 30, 2017. In addition, during the six months ended June 30, 2017, the Company acquired a controlling interest in three operating properties from certain joint ventures, in separate transactions, for a gross fair value of $320.1 million. See Footnote 2 for the operating properties acquired by the Company.

 

During the six months ended June 30, 2016, certain of the Company’s real estate joint ventures disposed of or transferred interests to joint venture partners in 33 operating properties, in separate transactions, for an aggregate sales price of $859.0 million. These transactions resulted in an aggregate net gain to the Company of $143.2 million, before income taxes, for the six months ended June 30, 2016. In addition, during the six months ended June 30, 2016, the Company acquired a controlling interest in one operating property and one development project from certain joint ventures, in separate transactions, for a gross fair value of $299.2 million.

 

The table below presents debt balances within the Company’s unconsolidated joint venture investments for which the Company held noncontrolling ownership interests at June 30, 2017 and December 31, 2016 (dollars in millions):

 

   

As of June 30, 2017

   

As of December 31, 2016

 

Venture

 

Mortgages

and

Notes

Payable, Net

   

Weighted

Average

Interest

Rate

   

Weighted

Average

Remaining

Term

(months)*

   

Mortgages

and

Notes

Payable, Net

   

Weighted

Average

Interest

Rate

   

Weighted

Average

Remaining

Term

(months)*

 

KimPru and KimPru II

  $ 628.1       3.34

%

    66.0     $ 647.4       3.07 %     67.5  

KIR

    735.8       4.62

%

    49.9       746.5       4.64 %     54.9  

CPP

    84.9       2.55

%

    10.0       84.8       2.17 %     16.0  

Other Joint Venture Programs

    289.9       4.33

%

    32.9       584.3       5.40 %     23.4  

Total

  $ 1,738.7                     $ 2,063.0